Study Shows How SOPA/PIPA Will Harm Investment In Key Innovations

from the and-now-congress-wants-to-screw-that-up dept

Harvard Business School professor Josh Lerner (who has done fantastic research in the past on problems with the patent system) appears to have turned his attention to copyright law as well. A new report he has put out shows how the Second Circuit appeals court ruling that said Cablevision's cloud-based DVR was legal provided some amount of certainty in questions concerning copyright law in the cloud, and that resulted in increased venture capital investment in related cloud offerings (pdf) to the tune of between $728 million to $1.3 billion.

Obviously, at first pass, there are questions about the level of causality here, as opposed to just correlation (or just the general development of the cloud market). However, Lerner tries to control for a variety of external variables in attempting to figure out the direct impact here. And, obviously, you can never tease out all the different factors, but he makes a pretty compelling case that this particular ruling had a massive impact in venture capitalists' willingness to invest in the space -- and further cites additional research that shows a pretty clear direct causal relationship between VC investment and innovation and job creation. He further controls for things like broadband penetration, which could also impact these numbers.

The main key here was comparing investments in the cloud space in the US vs. Europe over the same period, because the US had the legal clarification, while Europe did not. Basically, in the US, after the Cablevision ruling, investments in cloud computing rose by 41%. In Europe, it rose 27%. Obviously, much of that increase is just due to the rise of the space, but the greater increase in the US suggests that the ruling really had an impact -- and that impact is pretty massive in terms of investment, and from that innovation and jobs. From there, Lerner does a lot of additional statistical analysis to separate out the direct impact of the Cablevision ruling compared to many other possible factors, and shows a pretty significant impact from the ruling. There's a lot more in the report, with details of the statistical analysis used for those who want to dig into the specifics, which looks pretty rigorous from my standpoint (though, I haven't done hard core stats in about a decade, but at one point in the past I taught stats in college). Either way, Lerner clearly approached the question from a variety of different angles, and they all seemed to suggest similar results, which is pretty compelling.

The key conclusion:

Our findings suggest that decisions around copyright scope can have significant impacts on
investment and innovation. We have tested a number of models and consistently find that the
U.S. Second Circuit Court of Appeals’ decision led to additional incremental investment in U.S.
cloud computing companies compared to the EU experience. As shown in the figure in Appendix
B, estimates of increased VC investment in U.S. cloud computing from our seven models range
from $728 million to approximately $1.3 billion, with an average of $936 million. When paired
with the findings of the enhanced effects of VC investment relative to corporate investment, this
may be the equivalent of $2 to $5 billion in traditional R&D investment.

This is quite important to think about in the context of SOPA/PIPA, where Hollywood and the US Chamber of Commerce are seeking to massively change the legal framework around cloud computing (effectively killing the Cablevision ruling and much, much more). The clear fear here should be that doing so will massively chill innovation, job creation and investment. This is why top venture capitalists are so worried about SOPA/PIPA. It'll seriously chill investment in a key area of the innovation ecosystem. Even worse, this is the part of the industry that's actually helping the entertainment industry move into the 21st century.

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Even after addressing these causality concerns, the results suggest that venture funding has
a strong positive impact on innovation. The estimated coefficients vary according to the
techniques employed, but on average a dollar of venture capital appears to be three to four times
more potent in stimulating manufacturing industry patenting than a dollar of traditional corporate
R&D.

Would you like to begin showing how PIPA doesn't kill innovation? Or do I have to begin citing the article and show how you're wrong?

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Oh good, I thought you were going to make this difficult by denying the fact that copyright industries did far better than the entire economy.

Also, I'm just doing one thing that you aren't. Reading the Data in Chapter 3:

The unit of observation in the data extracted from VentureXpert is an investment by a
particular venture capital fund into a particular portfolio company on a particular date. The
dataset contains 2,009 observations on investments by 706 distinct funds into the 243 companies
on 587 different dates. These data were then aggregated by calendar quarter of investment date
by region (U.S., EU, and rest of world).

Appendix A summarizes these quarterly investment-level figures and other data discussed
below, by quarter, for both the U.S. and EU. As Appendix A depicts, total VC investment in the
identified U.S. cloud companies from the first quarter of 1995 to the end of 2010 amounted to
$5.9 billion. This reflects average quarterly investment of $92.3 million over that time period. In
the period immediately preceding the Cablevision ruling (Q1 2006 to Q2 2008), average
quarterly investment in U.S. venture-backed cloud companies was $131.0 million, and
subsequent to the ruling, that figure amounted to $184.7 million. Thus, average quarterly
investment in U.S. cloud computing increased by approximately 41 percent after the Cablevision
decision. Appendix A further depicts that VC investment in the identified EU cloud companies
from the first quarter of 1995 to the end of 2010 amounted to $242.3 million. This reflects average quarterly investment of $3.8 million over that time period. In the period immediately
preceding the Cablevision ruling (Q1 2006 to Q2 2008), the average quarterly investment in EU
venture-backed cloud companies was $7.0 million, and subsequent to the ruling, that figure
amounted to $8.9 million. Thus, average quarterly investment in EU cloud computing increased
by approximately 27 percent, as compared with 41 percent in the U.S., after the Cablevision
decision.

So the question is which do I believe, an AC who can't be bothered to read how his opinion has nothing but faith based economics, or Josh Lerner who used VentureXpert to help collect his data and prove that the US grew more with this legal ruling supporting innovation?

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@"Jay": "So the question is which do I believe, an AC who can't be bothered to read how his opinion has nothing but faith based economics, or Josh Lerner who used VentureXpert to help collect his data and prove that the US grew more with this legal ruling supporting innovation?"

Ah, the old appeal to authority.

Look, you can take the same numbers and bias them from Big Media view to "prove" that /they/ are less likely to invest in content because it'll be stolen. QED.

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Look, you can take the same numbers and bias them from Big Media view to "prove" that /they/ are less likely to invest in content because it'll be stolen

Blue, sometimes you can be a piece of work. Next time, read the article to realize that venture capitalists have been helping the US with innovation in the digital era by finding newer and more efficient ways to do business. Other than that, piracy is not theft. In all effect, it's the same as nothing happened in the first place. Potential sales don't get calculated on year end revenue.

The Supreme Court has disagreed with you on this.

The proliferation of mp3s on iPods disagrees with you.

The English language and your continued butchering of it disagree with you.

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It's not an appeal to authority to point out that the AC and Josh Lerner are on a completely different level in the field of economic analysis and that his arguments are back up with researched data. That's just a factual analysis of the presented credentials and paper. An appeal to authority would be saying that what Lerner says must be true because he said it which isn't what the portion you quoted says at all. Maybe you should learn what things like 'appeal to authority' mean before you toss them around?

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Jay, the numbers are meaningless without context. The problem is the context is the opinion of the writer, not those of the firms involved.

Further, the "increase in investment" is only an indication that the firms were waiting for a court ruling before going forward. There is no indication, example, that a negative ruling would have slowed them down, it may only have slightly changed the nature of their activities.

You (and Mike) are drawing conclusions where the nubmers and information can be taken in many ways, both for and against. Further, there is no basic in fact to compare past actions to potential future actions based on potential laws.

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"there is no basic[sic] in fact to compare past actions to potential future actions based on potential laws."
You're not seriously suggesting that prior behavior is no indication what-so-ever of possible future behavior for the same parties are you? I mean if this is really the way you think then it's absolutely understandable why you see nothing wrong with SOPA, because you're a naive idiot who hasn't learned from past abuses that abuses will happen again in the future.

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"You're not seriously suggesting that prior behavior is no indication what-so-ever of possible future behavior for the same parties are you?"

Actually, I am.

Without enough run throughs to see what happens in each case (courts agree, courts disagree, "good laws", "Bad laws", etc), a single run isn't indication of much of anything.

Moreover, the difference in investment growth (41% US, 27% Europe) could be just as easily answered by economic conditions at the time, favorable investment climates in certain areas, or even that more firms that specialized in cloud computing were based in the US. We are only talking a small difference in reality.

So I am saying that there isn't much to go on to forecast future actions.

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So, for the sake of A Few Dollars More, you would entrust that Chaos will reign in the Unstoppable force of piracy. It appears that there is The Grudge that the recording and movie industries have against tech companies and potential Rivals that makes them look like The Texas Chainsaw Massacre for entertainment. There's obviously an Idiocracy at the top, and I feel that it should be Open Season on those Over the Hedge that should send them Without a Paddle to their collective Doom.

But then, these guys are Untouchable: until they become The Expendables, culture will be in The Hurt Locker until the Apocalypse and their Imminent Demise. But hey, I'm just Insane in the Membrane - what do I know?

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He laid down more tracks on top of it: big, menacing low-end strings, an echoed-out needle-across-vinyl scratch. Toggled through more effects: GunCock2, Luger Slap Clap, Slapper Knock. Silenced the flute loop and punched up an ominous horror-movie keyboard part, like the score John Carpenter wrote for “Halloween.” And he started doing a little chair-dance, shrugging his shoulders and clicking from window to window — if you couldn’t hear the playback hammering through the speakers or see the screen of Lex’s laptop, the way he moved would be the only thing that indicated he was making music rather than, say, checking his e-mail.

The whole thing was done in less than half an hour. Lex saved the file and took a bite of pizza, and six minutes later he had another beat in progress, with the “Star Wars” light-saber-clash sound buried somewhere in it. I clocked this one on my iPhone. It was done in 22 minutes. I relayed this to Lex.

Re: "venture capitalists' willingness to invest in the space"

Is no measure of either innovation or legality, but solely of get-richer-quick

Are you familiar with how venture capital works? It often means completely locking up your cash for at least 7 years, with a very low percentage likelihood of return. I'm at a loss as to how that's "get richer quick."

SOP, standard operating procedure..

I love corps..
And even small business has this problem, but will adapt, more quickly(most times) as the small company HAS TO sell BETTER to sell more.

The problem with the large corp is CHANGE.
Changing what you have to something NEWER, is hard.
Even as a product line. You are selling products, and trying to sell to everyone, and there is ALWAYS a new product to evaluate/price/compare/sell.
Trying to give a GOOD product at a GOOD price, gets to be VERY hard.
So, what can you do?
STOP the innovation. thats ALL they can see.

MOST of the electronics on the market, is like shopping in a Store full of ALL the cereal products in the world. how can you tell the difference? from TV to your STOVE...tons of electronics. HOW do you compare. to many of them are BETA hardware.. 1 small resistor fails..and your stove/washer/dryer/CLOCK wont work..
HOW DOES the consumer compare?(it SUCKS). I watch the Consumerist site and there are some Very interesting stories/nightmares.

Over the years, Corp ideals have changed(this for all the old folk here) from selling a GOOD product that will last for years, to RESELLING you a new product every 2-5 years.(your LCD TV has a life of 5+ years, not 10-20).

Good luck out there..your only option is to QUIT supporting the corps. and if you find out a good way to do it...pass it on.

i really dont understand why there are so many relies to the ACs' who post here. it's obvious that they are either entertainment industry trolls or/and just simply trolls. let them get everything they want. let the US become a backward nation as far as innovation, jobs and world collaboration is concerned. after they get things their way, wait and see what sort of complete fuck up comes from it. wait and see how long it takes before they start moaning that they cant do or get what they want from the internet. wait and see how long it is before the first one has done to him/her what they are so keen on having done to others! wait and see how hard it is going to be to correct things, if they can be corrected, that is!